A New ETF From Blackrock Targets the $6 Trillion Market for Money Market Funds

BlackRock, the world’s largest asset manager, has made a significant move into a rapidly growing segment of the financial market by launching two new money market exchange-traded funds (ETFs). This marks the company’s entry into a trillion-dollar category that has seen a surge in investor interest, especially since the Federal Reserve began raising interest rates in early 2022.

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On Wednesday, BlackRock introduced the iShares Prime Money Market ETF (PMMF) and the iShares Government Money Market ETF (GMMF). These ETFs are designed to provide investors with easy access to short-term, low-risk investment options through the convenience and flexibility of the ETF structure.

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Money market funds have traditionally been considered a stable, low-volatility part of the investment landscape, attracting conservative investors looking for safety and liquidity. However, with interest rates rising sharply over the past couple of years, these funds have become more attractive due to their ability to offer higher yields compared to traditional savings accounts.

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Since the Fed started its rate-hiking cycle in early 2022, money market funds have experienced explosive growth. According to data from the Investment Company Institute, the industry held over $6.8 trillion in assets as of the week ending January 29, 2025. This total includes approximately $5.6 trillion in government money market funds, which invest primarily in U.S. government securities, and around $1.1 trillion in prime money market funds, which allocate more heavily to short-term corporate debt.

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Steve Laipply, BlackRock’s global co-head of iShares fixed income ETFs, explained the company’s strategic timing for this launch, stating, “We think the time is ripe to be able to innovate in the money market space with the ETF wrapper.” BlackRock aims to capitalize on the growing demand for money market products, offering investors the additional benefits that ETFs provide, such as intraday trading and greater transparency.

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Both of BlackRock’s new ETFs are designed to mirror the structure and investment strategies of traditional money market funds. The iShares Government Money Market ETF (GMMF) will primarily invest in short-term U.S. government debt instruments like Treasury bills, which are considered highly secure.

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On the other hand, the iShares Prime Money Market ETF (PMMF) will take on a slightly higher level of risk by including commercial paper (short-term corporate debt) alongside government securities. This approach typically results in higher yields for prime funds compared to their government-focused counterparts, making them appealing to investors seeking a modest return boost while still maintaining a conservative risk profile.

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Both ETFs come with an expense ratio of 0.2%, which is competitive with the fees charged by many traditional money market funds. Since these funds are newly launched, they do not yet have official yield figures. However, based on similar products in the market, yields are expected to hover around 4%, which is attractive given current interest rate levels.

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BlackRock isn’t the first asset manager to experiment with money market ETFs. In September 2024, Texas Capital launched its own government money market ETF, MMKT, which currently holds about $50 million in assets. While it has relatively light trading volume compared to other ETFs, it offers a seven-day yield of 4.42%, showcasing the competitive returns available in this space.

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Both the Texas Capital fund and BlackRock’s new ETFs are structured to comply with SEC Rule 2a-7, which governs money market funds. This regulation imposes strict requirements on the quality, maturity, and diversification of the fund’s holdings to maintain stability and liquidity, ensuring that these ETFs meet the criteria for traditional money market products.

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One key question is how investors will respond to money market ETFs compared to traditional money market funds. ETFs offer certain advantages, such as intraday liquidity, allowing investors to buy and sell shares throughout the trading day. This is a notable difference from traditional money market funds, which are typically priced once per day and are designed to maintain a stable net asset value (NAV) of $1 per share.

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However, despite the flexibility of ETFs, many financial advisors and their clients may prefer the simplicity and long-term track record of traditional money market funds. For conservative investors who value predictability and are accustomed to the $1-per-share stability, switching to an ETF structure might require some adjustment.

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The fact that a giant like BlackRock is entering the money market ETF space could signal a broader shift within the industry. As of December 31, 2024, BlackRock managed approximately $11.6 trillion in assets, giving it tremendous influence in the global investment landscape.

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Given BlackRock’s scale, reputation, and extensive distribution network, its move into money market ETFs could encourage other large asset managers to follow suit. This could lead to increased competition, more innovation, and potentially even lower fees for investors over time.

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Moreover, BlackRock’s involvement might attract institutional investors who prefer the transparency and flexibility of ETFs but still want exposure to safe, short-term assets. This could expand the money market ETF investor base beyond individual retail investors to include corporations, endowments, and other large organizations.

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As the Federal Reserve’s interest rate policy continues to evolve, the demand for cash-like investment options is expected to remain strong. Money market ETFs, with their combination of liquidity, safety, and competitive yields, are well-positioned to attract investor interest in this environment.

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BlackRock’s launch of the iShares Prime Money Market ETF (PMMF) and the iShares Government Money Market ETF (GMMF) represents not just an expansion of its ETF lineup but potentially the start of a new growth phase for the money market fund industry as a whole. Whether other asset managers will quickly follow suit remains to be seen, but one thing is clear: the money market space is no longer the quiet, overlooked corner of the investment world it once was.

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